UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MarkOne)
(X) COMBINED QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
- --------------------------------------------------------------------------------
Commission File Number: 1-8847
TNP ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1907501
(State of incorporation) (I.R.S. employer identification number)
4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code 817-731-0099
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes \X\ No \ \
TNP Enterprises, Inc. had 13,234,258 shares of common stock outstanding as of
April 27, 1998.
- --------------------------------------------------------------------------------
Commission File Number: 2-97230
TEXAS-NEW MEXICO POWER COMPANY
(Exact name of registrant as specified in its charter)
Texas 75-0204070
(State of incorporation) (I.R.S. employer identification number)
4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113
(Address and zip code of principal executive offices)
Registrant's telephone number, including area code 817-731-0099
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes \X\ No \ \
TNP Enterprises, Inc. holds all 10,705 outstanding common shares of Texas-New
Mexico Power Company.
TNP Enterprises, Inc. And Subsidiaries
Texas New-Mexico Power Company And Subsidiaries
Combined Quarterly Report on Form 10-Q for the period ended March 31, 1998
This Combined Quarterly Report on Form 10-Q is filed separately by TNP
Enterprises, Inc., and Texas-New Mexico Power Company. Texas-New Mexico Power
Company makes no representation as to information relating to TNP Enterprises,
Inc., except as it may relate to Texas-New Mexico Power Company, or to any other
affiliate or subsidiary of TNP Enterprises, Inc.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
TNP Enterprises, Inc. (TNP) and Subsidiaries:
Consolidated Statements of Income
Three Month Periods Ended March 31, 1998, and 1997 3
Consolidated Statements of Cash Flows
Three Month Periods Ended March 31, 1998, and 1997 4
Consolidated Balance Sheets
March 31, 1998, and December 31, 1997 5
Texas-New Mexico Power Company (TNMP) and Subsidiaries:
Consolidated Statements of Income
Three Month Periods Ended March 31, 1998, and 1997 6
Consolidated Statements of Cash Flows
Three Month Periods Ended March 31, 1998, and 1997 7
Consolidated Balance Sheets
March 31, 1998, and December 31, 1997 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 13
(a) Exhibit Index 13
(b) Reports on Form 8-K 13
Signature page 13
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------------------------
1998 1997
----------------- -----------------
(In thousands except per share amounts)
OPERATING REVENUES $ 125,399 $ 126,847
----------------- -----------------
OPERATING EXPENSES:
Purchased power 57,510 58,347
Fuel 7,959 9,969
Other operating and maintenance 21,969 19,737
Depreciation 9,877 9,627
Taxes other than income taxes 7,730 7,940
Income taxes 2,366 1,879
----------------- -----------------
Total operating expenses 107,411 107,499
----------------- -----------------
NET OPERATING INCOME 17,988 19,348
----------------- -----------------
OTHER INCOME:
Other income and deductions, net 364 204
Income taxes (166) (1)
----------------- -----------------
Other income, net of taxes 198 203
----------------- -----------------
INCOME BEFORE INTEREST CHARGES 18,186 19,551
----------------- -----------------
INTEREST CHARGES:
Interest on long-term debt 12,498 13,506
Other interest and amortization of debt-related costs 1,063 1,005
----------------- -----------------
Total interest charges 13,561 14,511
----------------- -----------------
INCOME FROM CONTINUING OPERATIONS 4,625 5,040
Loss from discontinued nonregulated operations, net of taxes (note 2) - 930
----------------- -----------------
NET INCOME 4,625 4,110
Dividends on preferred stock 38 40
----------------- -----------------
INCOME APPLICABLE TO COMMON STOCK $ 4,587 $ 4,070
================= =================
EARNINGS PER SHARE OF COMMON STOCK:
Earnings from continuing operations $ 0.35 $ 0.38
Loss from discontinued nonregulated operations - (0.07)
----------------- -----------------
EARNINGS PER SHARE $ 0.35 $ 0.31
================= =================
DIVIDENDS PER SHARE OF COMMON STOCK $ 0.27 $ 0.245
================= =================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,188 13,025
================= =================
The accompanying notes are an integral part of these consolidated financial statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------------------------------
1998 1997
------------------ --------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers 130,245 130,089
Purchased power (61,749) (55,719)
Fuel costs paid (8,010) (9,503)
Cash paid for payroll and to other suppliers (38,062) (33,494)
Interest paid, net of amounts capitalized (15,592) (20,828)
Income taxes paid (1,739) 874
Other taxes paid (16,431) (16,110)
Other operating cash receipts and payments, net 375 882
------------------ --------------------
NET CASH USED IN OPERATING ACTIVITIES (10,963) (3,809)
------------------ --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (7,791) (5,818)
Additions to other property and nonregulated investments 360 (2,806)
------------------ --------------------
NET CASH USED IN INVESTING ACTIVITIES (7,431) (8,624)
------------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (3,607) (3,238)
Common stock issuances 3,104 1,678
Borrowings from (repayments to) revolving credit facilities - net 26,500 120,000
Redemptions:
Other long-term debt (105) (19)
First mortgage bonds - (100,800)
------------------ --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,892 17,621
------------------ --------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 7,498 5,188
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 15,877 8,387
------------------ --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23,375 $ 13,575
================== ====================
RECONCILIATION OF NET INCOME TO NET
CASH USED IN OPERATING ACTIVITIES:
Net income $ 4,625 $ 4,110
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation 9,877 9,665
Amortization of debt-related costs and other deferred charges 940 967
Allowance for borrowed funds used during construction (36) (13)
Deferred income taxes 3,180 290
Investment tax credits (1,086) 241
Cash flows impacted by changes in current assets and liabilities:
Deferred purchased power and fuel costs (1,043) 2,072
Accrued interest (2,933) (7,271)
Accrued taxes (11,322) (6,394)
Changes in other current assets and liabilities (8,447) (9,722)
Other, net (4,718) 2,246
------------------ --------------------
NET CASH USED IN OPERATING ACTIVITIES $ (10,963) $ (3,809)
================== ====================
The accompanying notes are an integral part of these consolidated financial statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 December 31,
(Unaudited) 1997
--------------- -----------------
(In thousands)
ASSETS
UTILITY PLANT:
Electric plant $ 1,240,719 $ 1,235,257
Construction work in progress 2,691 2,281
--------------- -----------------
Total 1,243,410 1,237,538
Less accumulated depreciation 322,162 314,270
--------------- -----------------
Net utility plant 921,248 923,268
--------------- -----------------
OTHER PROPERTY AND INVESTMENTS, at cost 5,344 5,704
--------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents 23,375 15,877
Accounts receivable 6,301 8,585
Inventories, at lower of average cost or market:
Fuel 534 483
Materials and supplies 4,355 4,440
Deferred purchased power and fuel costs 3,613 2,570
Accumulated deferred income taxes - 1,707
Other current assets 921 982
--------------- -----------------
Total current assets 39,099 34,644
--------------- -----------------
DEFERRED CHARGES 27,119 28,310
--------------- -----------------
$ 992,810 $ 991,926
=============== =================
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholders' equity:
Common stock - no par value per share. Authorized 50,000,000
shares; issued 13,228,931 shares in 1998 and 13,132,821 in 1997 $ 190,267 $ 187,163
Retained earnings 112,096 111,078
--------------- -----------------
Total common shareholders' equity 302,363 298,241
Preferred stock 3,240 3,240
Long-term debt, less current maturities 374,436 478,041
--------------- -----------------
Total capitalization 680,039 779,522
--------------- -----------------
CURRENT LIABILITIES:
Current maturities of long-term debt 130,100 100
Accounts payable 22,680 27,035
Accrued interest 4,390 7,323
Accrued taxes 6,267 17,589
Customers' deposits 3,424 3,249
Accumulated deferred income taxes 587 -
Other current liabilities 15,255 26,665
--------------- -----------------
Total current liabilities 182,703 81,961
--------------- -----------------
REGULATORY TAX LIABILITIES 4,931 6,318
ACCUMULATED DEFERRED INCOME TAXES 88,526 85,250
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 20,011 21,149
DEFERRED CREDITS 16,600 17,726
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, and 5)
--------------- -----------------
$ 992,810 $ 991,926
=============== =================
The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
---------------------------------------
1998 1997
------------------ ------------------
(In thousands)
OPERATING REVENUES $ 124,575 $ 126,223
------------------ ------------------
OPERATING EXPENSES:
Purchased power 57,510 58,347
Fuel 7,959 9,969
Other operating and maintenance 19,270 18,770
Depreciation of utility plant 9,872 9,610
Taxes other than income taxes 8,384 7,795
Income taxes 2,804 2,065
------------------ ------------------
Total operating expenses 105,799 106,556
------------------ ------------------
NET OPERATING INCOME 18,776 19,667
------------------ ------------------
OTHER INCOME:
Other income and deductions, net 195 159
Income taxes (93) (1)
------------------ ------------------
Other income, net of taxes 102 158
------------------ ------------------
INCOME BEFORE INTEREST CHARGES 18,878 19,825
------------------ ------------------
INTEREST CHARGES:
Interest on long-term debt 12,498 13,506
Other interest and amortization of debt-related costs 1,061 1,005
------------------ ------------------
Total interest charges 13,559 14,511
------------------ ------------------
NET INCOME 5,319 5,314
Dividends on preferred stock 38 40
------------------ ------------------
INCOME APPLICABLE TO COMMON STOCK $ 5,281 $ 5,274
================== ==================
The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-------------------------------------
1998 1997
----------------- -----------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales to customers $ 125,267 $ 129,737
Purchased power (61,749) (55,719)
Fuel costs paid (8,010) (9,503)
Cash paid for payroll and to other suppliers (28,072) (27,548)
Interest paid, net of amounts capitalized (15,588) (20,828)
Income taxes paid - 3
Other taxes paid (17,486) (16,852)
Other operating cash receipts and payments, net 193 846
----------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (5,445) 136
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to utility plant (7,694) (5,818)
Additions to other property and investments - -
----------------- -----------------
CASH FLOWS USED IN INVESTING ACTIVITIES (7,694) (5,818)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on preferred and common stocks (10,038) (9,040)
Borrowings from (repayments to) revolving credit facilities - net 26,500 120,000
Redemptions:
First mortgage bonds - (100,800)
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,462 10,160
----------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,323 4,478
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,772 5,115
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,095 $ 9,593
================= =================
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 5,319 $ 5,314
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation of utility plant 9,872 9,610
Amortization of debt-related costs and other deferred charges 940 967
Allowance for borrowed funds used during construction (36) (13)
Deferred income taxes 3,846 (467)
Investment tax credits (1,085) 334
Cash flows impacted by changes in current assets and liabilities:
Deferred purchased power and fuel costs (1,043) 2,072
Accrued interest (2,933) (7,271)
Accrued taxes (8,994) (6,855)
Changes in other current assets and liabilities (5,098) (6,319)
Other, net (6,233) 2,764
----------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (5,445) $ 136
================= =================
The accompanying notes are an integral part of these consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
(a wholly owned subsidiary of TNP Enterprises, Inc.)
CONSOLIDATED BALANCE SHEETS
March 31, 1998 December 31,
(Unaudited) 1997
---------------- ---------------
(In thousands)
ASSETS
UTILITY PLANT:
Electric plant $ 1,240,671 $ 1,235,239
Construction work in progress 2,691 2,281
---------------- ---------------
Total 1,243,362 1,237,520
Less accumulated depreciation 322,162 314,270
---------------- ---------------
Net utility plant 921,200 923,250
---------------- ---------------
OTHER PROPERTY AND INVESTMENTS, at cost 214 214
---------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 6,095 2,772
Accounts receivable 278 2,342
Inventories, at lower of average cost or market:
Fuel 534 483
Materials and supplies 4,355 4,440
Deferred purchased power and fuel costs 3,613 2,570
Accumulated deferred income taxes - 1,707
Other current assets 356 222
---------------- ---------------
Total current assets 15,231 14,536
---------------- ---------------
DEFERRED CHARGES 29,716 29,006
---------------- ---------------
$ 966,361 $ 967,006
================ ===============
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common shareholder's equity:
Common stock, $10 par value per share
Authorized 12,000,000 shares; issued 10,705 shares $ 107 $ 107
Capital in excess of par value 222,146 222,146
Retained earnings 60,049 64,768
---------------- ---------------
Total common shareholder's equity 282,302 287,021
Redeemable cumulative preferred stock 3,240 3,240
Long-term debt, less current maturities 374,400 477,900
---------------- ---------------
Total capitalization 659,942 768,161
---------------- ---------------
CURRENT LIABILITIES:
Current maturities of long-term debt 130,100 100
Accounts payable 21,908 24,859
Accrued interest 4,390 7,323
Accrued taxes 8,757 17,751
Customers' deposits 3,424 3,249
Accumulated deferred income taxes 587 -
Other current liabilities 11,502 19,148
---------------- ---------------
Total current liabilities 180,668 72,430
---------------- ---------------
REGULATORY TAX LIABILITIES 4,931 6,318
ACCUMULATED DEFERRED INCOME TAXES 84,011 81,085
ACCUMULATED DEFERRED INVESTMENT TAX CREDITS 20,239 21,286
DEFERRED CREDITS 16,570 17,726
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, and 5)
---------------- ---------------
$ 966,361 $ 967,006
================ ===============
The accompanying notes are an integral part of these consolidated financial statements.
TNP Enterprises Inc. and Subsidiaries
Texas-New Mexico Power Company and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Interim Financial Statements
The interim consolidated financial statements of TNP and subsidiaries, and
TNMP and subsidiaries are unaudited, and contain all adjustments (consisting
primarily of normal recurring accruals) necessary for a fair statement of the
results for the interim periods presented. Results for interim periods are not
necessarily indicative of results to be expected for a full year or for
previously reported periods due in part to seasonal revenue fluctuations. It is
suggested that these consolidated financial statements be read in conjunction
with the audited consolidated financial statements and notes thereto included in
TNP's and TNMP's 1997 Combined Annual Report on Form 10-K.
Prior period statements have been reclassified in order to be consistent
with current period presentation. The reclassification had no effect on net
income or common shareholders equity.
Note 2. Discontinued Nonregulated Operations
As discussed in TNP's and TNMP's 1997 Combined Annual Report on Form 10-K,
management authorized a plan to discontinue the construction activities segment
of Facility Works Inc. (FWI), TNP's wholly owned unregulated subsidiary, in late
1997. FWI is continuing to operate its service and maintenance segment of its
business. The loss incurred by FWI's construction segment during the first
quarter of 1997 has been reclassified as a loss from discontinued operations.
The construction segment is expected to be fully disposed by the end of 1998.
Note 3. Regulatory Matters
Texas Transition to Competition Plan
As discussed in TNP's and TNMP's 1997 Combined Annual Report on Form 10-K,
TNMP and the staff of the Public Utility Commission of Texas (PUCT), along with
other signatories, reached an agreement on TNMP's proposed transition to
competition plan on December 22, 1997. The agreement proposes a five-year
transition period and allows TNMP's customers to choose their electric supplier
at the end of the transition period. The agreement provides the opportunity for
TNMP to recover a portion of its stranded costs during the transition period and
establishes a competitive transition charge to recover any stranded costs that
remain at the end of the transition period over the subsequent five years.
Hearings conducted by the State Office of Administrative Hearings were completed
during the first quarter of 1998. PUCT approval is expected by mid-1998.
Fuel Reconciliation
On April 21, 1998, the PUCT issued a final order to approve the stipulated
agreement regarding TNMP's filed fuel reconciliation for the period from
September 30, 1993 to December 31, 1996. As discussed in TNP's and TNMP's 1997
Combined Annual Report on Form 10-K, the agreement specifies all fuel costs
incurred during the reconciliation period should be approved as reasonable and
necessary costs. Also, the agreement does not propose a change to the fixed fuel
factor; however, it specifies the fuel factor is expected to be addressed in the
"Texas Transition to Competition Plan" described above.
Note 4. Accounting for the Effects of Regulation
TNMP's financial statements currently reflect assets and costs based on
current cost-based ratemaking regulations in accordance with Statement of
Financial Accounting Standards No. 71 (SFAS 71), Accounting for the Effects of
Certain Types of Regulation. Continued applicability of SFAS 71 to TNMP's
financial statements requires that rates set by an independent regulator on a
cost-of-service basis can actually be charged to and collected from customers.
As discussed in TNP's and TNMP's 1997 Combined Annual Report on Form 10-K,
as a result of the Community Choice program in New Mexico, TNMP discontinued the
application of SFAS 71 to its generation/power supply operations in New Mexico
during 1997. The discontinuing of regulatory accounting principles had no effect
on TNMP's financial condition. As discussed in Note 3, TNMP has reached an
agreement with the staff of the PUCT and other signatories regarding TNMP's
proposed transition to competition plan. This agreement, subject to PUCT
approval, would result in TNMP discontinuing the application of SFAS 71 to its
generation/power supply operations in Texas. If the plan is approved without
significant modification, the discontinuing of regulatory accounting principles
is not expected to have a material effect on TNMP's financial condition.
Management believes that, as of March 31, 1998, and for the foreseeable future,
TNMP's transmission and distribution operations continue to follow SFAS 71.
Note 5. Commitments and Contingencies
Legal Actions
As discussed in TNP's and TNMP's 1997 Combined Annual Report on Form 10-K,
TNMP is the defendant in a suit styled Clear Lake Cogeneration Limited
Partnership vs. Texas-New Mexico Power Company. As of filing date of this Form
10-Q, no changes to this matter have occurred.
As discussed in TNP's and TNMP's 1997 Combined Annual Report on Form 10-K,
TNMP is the defendant in a suit styled Phillips Petroleum Company vs. Texas-New
Mexico Power Company. As of the filing date of this Form 10-Q, no changes to
this matter have occurred.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A).
The following discussion should be read in conjunction with the related
interim consolidated financial statements and notes.
Results Of Operations
Overall Results
TNP's earnings applicable to common stock were $4.6 million for the quarter
ended March 31, 1998 as compared to $4.1 million for the quarter ended March 31,
1997. Excluding the loss on FWI's discontinued operations incurred during 1997,
earnings for the first quarter of 1997 were $5.0 million. Earnings decreased
slightly as compared to the corresponding 1997 quarter primarily due to losses
associated with FWI's service and maintenance activities.
As discussed in Note 2, FWI adopted a revised strategy in late 1997 to
concentrate on service and maintenance activities and discontinue its
construction segment. For the first quarter of 1998, FWI's service segment
incurred a net loss of $0.5 million on revenues of $0.8 million as compared to a
1997 first quarter net loss of $0.1 million on revenues of $0.6 million. FWI's
1998 operating results were comparable to management's forecasted expectations.
Since the operations of TNMP (the principal subsidiary) currently represent
most of TNP's operations, the following discussion focuses on TNMP's operations
unless noted otherwise.
Operating Revenues
The following table summarizes the components of operating revenues
(in thousands).
Three Months Ended March 31,
---------------------------
Increase
1998 1997 (Decrease)
------- ------- ----------
Operating revenues $ 124,575 $ 126,223 $ (1,648)
Less pass-through items 64,128 67,542 (3,414)
------- ------- ---------
Base revenues $ 60,447 $ 58,681 $ 1,766
======= ======= =========
Pass-through items are the portion of operating revenues that recover the
costs of purchased power and fuel from customers. These items affect customer
rates but do not affect operating income. Explanations for the first quarter
variance are discussed under "Results of Operations -- Operating Expenses."
The following table summarizes the components of the base revenues increase
from the 1997 to 1998 (in thousands).
Base revenues
-------------
Weather related $ (596)
Reserve for rate refund (779)
Customer growth 910
Industrial - economy rate sales 382
Industrial - firm rate sales (760)
Transmission revenue 2,114
Price / sales mix and other 495
--------
Base revenues increase $ 1,766
========
Current quarter base revenues increased $1.8 million, or 1.3%, compared to
the corresponding 1997 period. The base revenues increase resulted from
increased transmission revenues and were partially offset by reserve for Texas
rate refund, loss of a significant industrial customer, and mild weather during
the first quarter of 1998 as discussed below.
Transmission revenues increased as a result of the first quarter of 1998
being recorded under a different methodology than the first quarter of 1997.
During 1996, the PUCT passed a wholesale transmission access rule which
established a regional method of transmission pricing, terms, and conditions.
This new transmission fee structure was scheduled to start in early 1997.
However, during the first quarter of 1997 several Texas utilities unsuccessfully
petitioned the PUCT to revise the new transmission rules, and filed an appeal in
a state district court. On April 20, 1998, the court dismissed the appeal, and
affirmed the validity and constitutionality of Texas transmission access rules.
TNMP did not begin recording its transmission revenues and expense in accordance
with the new rules until the second quarter of 1997.
During the first quarter of 1998, TNMP reserved $779,000 for potential rate
reductions for its Texas customers. As discussed in Note 3, TNMP has filed a
Transition to Competition Plan with the PUCT that proposes rate reductions
retroactively to January 1, 1998.
The following table summarizes the components of gigawatt-hour (GWH) sales.
Three Months Ended March 31,
----------------------------
Increase
1998 1997 (Decrease)
----- ----- --------
GWH sales:
Residential 478 494 (16)
Commercial 382 380 2
Industrial:
Firm 175 267 (92)
Economy 1,061 1,061 -
Power marketing 113 30 83
Other 25 25 -
----- ----- --------
Total GWH sales 2,234 2,257 (23)
===== ===== ========
Current quarter sales of 2,234 GWHs decreased by 23 GWHs (or 1%) as
compared to the corresponding 1997 quarter sales of 2,257 GWHs. The decrease
resulted from the loss of a significant industrial customer and the unfavorable
impact of extremely mild weather to residential sales. Partially offsetting the
decrease were increased sales from power marketing activities.
Operating Expenses
The following table summarizes the components of TNMP's total operating expenses
(in thousands).
Three Months Ended March 31,
----------------------------
Increase
1998 1997 (Decrease)
------ ------ --------
Pass-through expenses:
Purchased power $ 56,464 $ 58,347 $ (1,883)
Fuel 7,664 9,195 (1,531)
------- ------- --------
Total pass-through items 64,128 67,542 (3,414)
Purchased power costs in excess
of revenue recovery 1,046 - 1,046
Other operating expenses 29,437 29,154 283
Income and other tax expenses 11,188 9,860 1,328
------- ------- --------
Operating expenses $105,799 $ 106,556 $ (757)
======= ======= ========
Overall, current quarter operating expenses were slightly lower than prior
quarter as reduced pass-through costs were offset by incurring purchased power
costs in excess of revenue recovery and increased income and other tax expenses.
Pass-through Expenses
Pass-through expenses consist of certain purchased power and fuel costs.
Current quarter pass-through expenses were $3.4 million lower than prior quarter
due to decreases in both types of costs.
Purchased Power. Purchased power costs decreased by $1.9 million in the
current quarter due primarily to reduced power requirements to meet lower GWH
sales as explained above.
Fuel. The decrease in the current quarter of $1.5 million is attributed to
the reduction in residential and firm industrial sales. The majority of TNMP's
monthly fuel costs are recovered in revenues through a fixed fuel factor per KWH
approved by the PUCT. TNMP records as fuel expense the amount collected through
this fixed fuel factor. Any difference between the amount collected and actual
cost is deferred for collection/refund in future periods.
Purchased Power Costs in Excess of Revenue Recovery
TNMP incurred $1.0 million of purchased power costs in excess of revenue
recovery due to the implementation of New Mexico Community Choice during 1997.
This plan freezes customer rates (including the recovery of purchased power
costs) during the transition period that ends on May 1, 2000. As a direct
result, purchased power costs incurred in New Mexico are not fully recovered in
customer rates. This additional cost was offset by increased base revenue
generated from a recently renegotiated agreement with a significant industrial
customer in New Mexico. As discussed in Note 4, the implementation of this plan
resulted in TNMP discontinuing the application of SFAS 71 for the power supply
portion of TNMP's New Mexico operations.
Other Operating Expenses, Income and Other Tax Expenses
Other operating expenses for the current quarter were approximately the
same as the prior year quarter.
Current quarter income and other tax expenses increased by $1.3 million.
The increases are due to higher pre-tax income, higher state income taxes, and
franchise taxes.
Interest Expense
Interest charges decreased by $1.0 million due to reduced debt levels of
the credit facilities.
Financial Condition
Liquidity
Currently, the main sources of liquidity for TNMP are cash flow from
operations and borrowings from credit facilities. TNMP's cash flow from
operations was lower for the current year quarter as compared to prior year
quarter due to lower receipts from customers and higher payments for purchased
power costs. TNP's consolidated cash flow from operations also was lower than
the prior year quarter due to the same reasons as discussed above in addition to
$1.6 million of cash used by Facility Works in winding down its construction
business. Currently TNP's primary source of cash are dividends from TNMP.
TNMP has two credit facilities with a total commitment of $250 million -
the 1995 Facility ($150 million) and the 1996 Facility ($100 million). As of
March 31, 1997, available unused credit under the 1995 Facility was $123.5
million, subject to interest coverage and capitalization tests. Under the 1995
Facility, TNMP can borrow up to $73.5 million of the unused commitment with no
additional collateral and borrow the remainder of the unused commitment ($50
million) by pledging first mortgage bonds (FMBs) equal to the principal amount
of such borrowings.
There is currently no available credit under the $100 million 1996
Facility. The interest rates under both facilities are based on the London
Interbank Offered Rate (LIBOR). The interest rate margins on both facilities
will decrease as the ratings on TNMP's FMBs improve.
TNMP has sufficient liquidity to satisfy the possibility of any known
contingencies. Management believes cash flow from operations and periodic
borrowings under its two revolving credit facilities should be sufficient to
meet working capital requirements and planned capital expenditures at least
through 1998.
Other Matters
New Accounting Standards
The Financial Accounting Standards Board issued SFAS 130, Reporting
Comprehensive Income, which became effective January 1, 1998. SFAS 130 requires
companies to report all changes in common shareholders equity during a period,
except those resulting from investment by owners and distribution to owners, in
a financial statement for the period in which they are recognized. This
statement also requires prior period restatement for the comparative years
presented during the period of adoption. Comprehensive income as defined by SFAS
130 will not be materially different from net income recorded on the
accompanying consolidated statements of income.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed with this report:
10 Amendment dated March 31,1998 to Amended and Restated Agreement
for Electric Service (dated May 14, 1990), as Amended, Between
Texas-New Mexico Power Company and Texas Utilities Electric
Company.
27(a) Financial Data Schedule for TNP.
27(b) Financial Data Schedule for TNMP.
(b) Reports on Form 8-K - None
Statement Regarding Forward Looking Information
The discussions in this document that are not historical facts, including,
but not limited to, the outcome of current and future rate/regulatory
proceedings, the continued application of regulatory accounting principles,
future cash flows and the potential recovery of stranded costs, are based upon
current expectations. Actual results may differ materially. Among the facts that
could cause the results to differ materially from expectations are the
following: legislation in the states TNMP serves affecting the regulation of
TNMP's business; changes in regulations affecting TNP and TNMP's businesses;
results of regulatory proceedings affecting TNP's and TNMP's operations
(particularly the transition to competition proceedings now pending before the
PUCT); future acquisitions or strategic partnerships; general business and
economic conditions; negotiations regarding TNMP's proposal regarding transition
to competition in its Texas service area; and other factors described from time
to time in TNP's and TNMP's reports filed with the Securities and Exchange
Commission. TNP and TNMP wish to caution readers not to place undue reliance on
any such forward looking statements, which are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
TNP ENTERPRISES, INC. AND SUBSIDIARIES
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(Registrant) TNP ENTERPRISES, INC. AND
TEXAS-NEW MEXICO POWER COMPANY
Date: May 4, 1998 By \s\ MANJIT S. CHEEMA
-----------------------
Manjit S. Cheema
Senior Vice President and Chief Financial Officer
Date: May 4, 1998 By \s\ SCOTT FORBES
-------------------
Scott Forbes
Controller and as Chief Accounting Officer